What Bitcoins and tulips have in common

If you’ve heard of Bitcoin, you might already know it’s essentially a new currency which is completely digital, anonymous, universal, and decentralized.

You might also remember the recent Bitcoin craze where seemingly everyone and their grandmothers were talking Bitcoin. (Interestingly, a Canadian statistic showed that while Bitcoin awareness was 85%, only 5% of people had ownership of any, which might mean that not enough people actually understand it enough to a practical degree).

People are also wary of what they don’t understand, and while we often praise early adopters for their far-sightedness, many only see in hindsight that the endeavor was promising right from the start.

Still, if there’s anything people are still not convinced of, it’s the hype surrounding the latest fad. This is, of course, a good thing, as skepticism is a hard-wired human survival instinct, without which we’d all be left to the cruelest whims of happenstance.

Hence, it’s understandable when people compare Bitcoins to tulips. However, it is clear once you delve deeper into the history and the workings of Bitcoin that Bitcoin is vastly different from tulips.

The tulip mania of the 1960s

Technically, it’s the bulbs, and not the tulip themselves – but nonetheless, the late 1630s saw the Dutch Republic engage in one of the first market bubbles (an economic term meaning the sudden and meteoric rise of prices followed by a sudden drop and contraction, usually due to the speculative nature of the commodity involved).

We can characterize a bubble by the maximum number of investors being present in the equation due to everyone rushing to buy and build up more stores of the thing in question.

When a peak point of saturation is hit, investors start to sell off what they have, and since all of this happens in tandem, the bubble deflates.

The tulip mania – on which experts and historians differ in opinion as to the severity of its nature and authenticity of the claims – was thus the first example of something being used a value-store and currency at the same time, despite just being a simple flower bulb.

The crash of the tulip dream and Bitcoin

Some historians claim that tulip bulbs in that time went for prices the same as houses, everyone from the elite to the lower class was betting all they had on the commodity, and the crash made so many bankrupt that many went and drowned themselves.

It was the Semper Augustus at the core of the problem, regarded as a rare and beautiful flower (word is that only 12 of the bulbs existed at a time, kicking off this whole mass madness).

Many people believe that Bitcoins are similar to Tulips and that they will crash with all of the investors losing their money. However, there are numerous different reasons why this is not going to be the case.

Although it is fair to debate whether Bitcoin will ever be able to replace standard FIAT currency, it is quite obvious that Bitcoin will not plunge to zero. Here is why it is simply impossible for Bitcoins to suffer the same fate that tulip bulbs did hundreds of years ago.

The truth behind Bitcoin’s future

You would very easily find many comparisons between Bitcoin and the tulip bulbs of the 1600s – something as big at Bitcoin would, naturally, invite such comparisons. At this point, the tulip mania legend exists somewhat as a metaphor or allegory more than anything, rather than a legitimate historical account or moral-driven anecdote.

Panic and fearmongering are essential parts of anything new, especially when it’s something that’s not only new as a product or service, but a concept too. Misrepresentation of history and statistics can be combined with it to create something that drives people even further away.

It was never the tulips, nor the tulip bulbs, that held so much value. It was the futures contract of the bulbs. The aforementioned fact about houses being bought and sold wasn’t about giving a key to your house to someone offering you a tulip flower, but rather it had to do with tulip futures (in the economic sense) that were promised to explode in value.

At its heart, the story of the tulip mania is a fable about crowd psychology and the dangers of a lack of understanding of how finance works. It has nothing to do with the way Bitcoin works, and to suggest so would be exactly the sort of thing that caused the tulip mania in the first place.

The Bitcoin craze is unlike the Tulip mania

A Bitcoin is a new and universal way of sending and receiving highly-divisible money without worrying about counterfeiting, regulation, and the costs associated with transferring money. A tulip is a flower that was once, almost 500 years ago, the center of a mass hysteria boom that – even if taken to be absolute fact – was blown out of proportion at the time and continues to be.

There is absolutely no reason for anyone to believe that Bitcoin could end up losing all of its value like the tulip did. In fact, Bitcoin is gaining traction in the financial world with many financial institutions springing up to help users manage their Cryptocurrency portfolio.

Bitcoin does have some security concerns, but all of them are to do with user negligence rather than problems with the functionality. Since Bitcoin has a ton of advantages including privacy, security, and speed built into it, the fact that it has limited supply on top of that means that its value can only go up from here on out (there might be fluctuations in the short-term, but the value will go up in the long-term).

Bitcoin is bubble-proof

What makes Bitcoin different not just from the tulip but from any other bubble, is the issue of scarcity. People in the 1600s didn’t realize that tulips were not scarce. More tulips have been produced since then and continue to be.

It’s the same way with other forms of currency, for example, where it can suddenly be devalued by the government simply by them printing more.

Bitcoin, however, is finite: only 21 million Bitcoin will ever exist at the current count by 2140, thus making sure that the value is only projected to increase over time, by nature.

There’s also the obvious comparison between a tulip bulb not being a very good indicator of how the actual tulip would turn out, with the fact that a Bitcoin is really just a Bitcoin no matter what you say about it, or how the price rises and falls: the commodity remains the same and its value is not determined by any extrinsic or intrinsic quality. Tulip values differed based on how they looked, and such.

We must also consider the unique factor of divisibility – Bitcoins are famous for being divisible to eight decimal places (a satoshi), whereas a tulip flower could obviously not be used for currency in the same way.

How to Protect your Bitcoin

Since all the data above shows that Bitcoin is a currency that could very well have mainstream acceptance all over the world, it is important to make sure that you protect all of the Bitcoins that you currently have in your wallet.

Think of the following measures as being similar to locking all your precious tulip bulbs in a safe. The main difference is that you will still have use for your Bitcoins come a few years’ time.

• Use a VPN to make sure no one can spy on your internet connection. Look for a good free VPN if you do not want to pay.
• Keep most of your Bitcoin in a cold-storage . Only keep a small amount in your online wallet.
• Create multiple backups of your wallet. If you keep all of your Bitcoins in your USB and you lose it, it could be catastrophically bad for you.
• Use a very strong password to decrease the chances of someone hacking into your wallet.

Conclusion

Finally, to hopefully drive home the futility of the comparison, think of the durability of a digital currency that is protected through cryptography and powerful processing versus a flower. Think of the ease of theft of a flower versus a completely anonymous currency that is protected against double-spending, verified by powerful algorithms constantly, and verifiable on a public level of great ease.

A Bitcoin is a powerful way to keep your money in your own control and use it in a truly free way, whereas a tulip is a flower of great beauty, and has nothing to do with the former.